Retail recovery

The prospects of an early election, the carbon tax, mining tax and other dampeners will have to cease by the end of the year to give sales a chance to get going.

This all means that while times will stay very tough for those outside the mining industry, the jobs recovery in the US, the China commodity demand cycle and the slow decline in the gold price will combine to build both business and consumer confidence.

Smart companies appreciate the prospects of a retail recovery over the summer holidays with a steady state for interest rates until the school bells ring next year. Even Glenn Stevens is having second thoughts about the sustainability of the divided national economy and is following the US Fed’s approach by giving us a year off from rate volatility.

The good news is that the Australian Bureau of Statistics last week released Australia’s June quarter GDP figures, which showed the Australian economy, grew by 1.2% during the quarter — an annual rate of growth of nearly 5%. This bodes well for quality Christmas gift giving and a bonanza in the New Year sales but retailers will need to invest in quality staff and superior service to compete with discount operators and online purchases.

As Margy Osmond, Chief Executive of the Australian National Retailers Association has said, “There’s no doubt that retailers are working with a very conservative shopper who clearly doesn’t want to spend too much money.” While there is uncertainty about mortgages and US reports of an explosion of foreclosures and claims that they will hit Australia next year, Margy is right in saying, “Things are still tough within the retail sector”.

This week’s Roy Morgan Consumer Confidence suggests the renewed talk of interest rate rises to come has put an immediate dampener on the upward trajectory of Consumer Confidence in the past two weeks. Despite this, perceptions of the Australian economy have improved with 31% (up 1%) of Australians now expecting the Australian economy will have “good times” in the next 12 months.

Gary Morgan reports Consumer Confidence has fallen to 112.6 (down 0.5 points) after two straight weeks of rises. Driving this week’s falling confidence is how Australians view their family’s financial situations, with 29% (down 2%) of Australians saying their family is “better off” financially than this time last year and 35% (down 3%) of Australians expecting to be “better off financially” this time next year.

Bill Evans, Westpac Chief Economist has accepted that there has been a steady move back up in consumer sentiment but not yet as high as the Morgan index suggests. Few economists are prepared to support Bill’s suggestion that we are likely to see a rate cut this year.

Evans warns that struggling retailers and builders that customers are still very wary about big spending although there has been an improvement in attitudes to family finances and home buying. There was, however, a 15% surge in the proportion who thought that now was a good time to buy a home – the highest level in a couple of years.

Expect all of the major retailers to drive hard bargains on their suppliers, expect to see more home brands emerge and expect the big retailers to put lots of capital into new store outlets to increase volumes in preparation for a full retail recovery next financial year.

The key to success will be a combination of close contact with premium clients who are preparing for a better New Year and investment in advertising and promotion to create a new customer base for longer-term recovery.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Colin is also a member of the global Association of Professional Futurists.